The Government's environmental watchdog called for a big increase yesterday in the fines imposed on companies for pollution offences, claiming that current penalties were viewed as "a legitimate business expense".

The Government's environmental watchdog called for a big increase yesterday in the fines imposed on companies for pollution offences, claiming that current penalties were viewed as "a legitimate business expense".

Sir John Harman, the chairman of the Environment Agency, described the average fine imposed last year of £8,532 as "paltry" and said penalties urgently needed to be increased to fit the crime.

"At the moment they are like a small gnat bite to most businesses," he added.

The agency also published a list of the 30 British companies with the worst environmental records. Heading the list is Thames Water, prosecuted six times last year and fined £288,000. Railtrack is in third place after being fined £129,000 for two offences.

Barbara Young, the agency's chief executive, contrasted the "piffling" level of fines handed down by magistrates' courts with penalties of up to £3.2m for breaches of competition law, imposed on companies by the Office of Fair Trading. "The message I draw is that environmental crime doesn't really count," she said.

Fines had to be increased to a minimum of £100,000, Mrs Young said. But she also pointed out that, even under existing arrangements, magistrates were not using their powers to the full. The maximum fine in a magistrates' court is £20,000.

The number of prosecutions launched by the agency rose by 23 per cent last year to 694, but the number of enforcement or prohibition notices fell from 500 in 1999 to fewer than 400. Seven company directors and senior managers were convicted or fined personally and two were cautioned.

Friends of the Earth called on the agency to increase the number of prosecutions, saying that too many companies were escaping punishment.

It highlighted the example of Southern Water, part of the ScottishPower group, which was only prosecuted for 10 offences last year despite a 131 per cent increase in incidents.

Mrs Young said the agency did want to mount more prosecutions but that would require extra staff and resources. Those should be provided not by the taxpayer but through the licensing fees that businesses paid the agency.

Among the worst incidents featured by the agency in its Spotlight report for 2000 is one where a cocktail of raw untreated sewage and dangerous industrial chemicals forced householders to move into rented accommodation for a year. In another incident a wildlife haven was polluted by a leak of hydrochloric acid.

Last year's increase in prosecutions was in part due to an 18 per cent rise in water pollution incidents.

The agency said that was partly explained by the wet weather and higher levels of flooding, but was also "a worrying indication of lapses in effective management".

The agency said that on the plus side there had been substantial cuts in emissions of dioxins, sulphur dioxide and volatile organic compounds.